Thailand is retreating from its disastrous rice subsidy program, but not enough

Quartz

After years of stubbornly resisting widespread criticism over a populist rice subsidy policy, Thailand is finally showing signs that it might be willing to backtrack, but its reluctant retreat probably won’t be enough to reverse a dramatic plunge in its exports.

The country has an unusual approach to rice farming. Rather than pay famers a direct subsidy, the new government fulfilled an election pledge in 2011 to buy unlimited quantities of rice from its farmers at up to 50% over the market price. The poor rural farmers who form the core of the government’s political base jumped at the opportunity, but it was an economic disaster—India and Vietnam quickly undercut Thailand’s position as the world’s biggest rice exporter, and the government got stuck with over 17 million tons of overpriced rice, which is costly to maintain and can only be stockpiled for a year or so.

Prime Minister Yingluck Shinawatra’s government, which has been facing a barrage of criticism from opposition politicians over the rice scheme, isn’t backing down entirely, announcing on Wednesday that it will reduce the amount that it guarantees farmers by 20% to 12,000 baht per ton ($388). But the move is unlikely to bring down Thai rice prices sufficiently to match competing exports from India and Vietnam. The market price for standard grade Thai rice is around $532 per ton, compared to $445 in India and $370 in Vietnam for comparable grades. Thai officials have said that the scheme will continue until at least 2017.

In the last two years, Thailand has been toppled as the world’s number one rice exporter, incurred losses of some $4.4 billion on its subsidy policy, and received harsh criticism from the World Bank, Asian Development Bank and Moody’s rating agency. To make matters worse, the rice scheme has been plagued by corruption and fraud—the opposition party claims it channels subsidy money to unscrupulous officials and corrupt politicians. The government insists that the scheme supports needy farmers. Either way, it is transforming Thai rice from a crucial commodity into an unaffordable luxury good.



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